BOK able to borrow short-term dollar funding from Fed by using Treasury holdings

South Korea will be able to borrow up to $60 billion from the US Federal Reserve's "repo facility," designed to help countries secure overnight dollar funding by using their holdings of US Treasury securities, the central bank said Thursday.

The deal reached with the Federal Reserve on Tuesday (US time) will allow the Bank of Korea (BOK) to exchange its US Treasury holdings for dollars through the Foreign and International Monetary Authorities (FIMA) Repo Facility at an interest rate of 0.25 percent, according to the central bank.

The FIMA Repo Facility is designed to provide a "backstop source of temporary dollar liquidity" for its account holders, including foreign central banks.

The account holders can enter into repurchase agreements with the Federal Reserve and exchange their US Treasury securities for dollars. The borrowing has a one-day maturity that can be rolled over if necessary.

As of end-October, South Korea held $125.4 billion worth of US Treasury securities, of which more than 90 percent are said to be owned by the BOK.

The FIMA Repo Facility was temporarily launched in March 2020 to cushion market instability caused by the pandemic. It was turned into a standing system in July this year.

The BOK said that the latest deal will help the country secure a new source for dollar liquidity that can be utilized when necessary.

The deal came days after the BOK said its $60 billion currency swap contract with the Federal Reserve will expire as scheduled later this month, saying that financial and economic situations at home and abroad remain stable.

The BOK signed the currency swap contract in March 2020 to ease financial anxiety caused by the coronavirus pandemic and had since extended the deal three times. It is set to expire on Dec. 31. (Yonhap)